ON the backdrop of the Kl Technology (KLTEC) index outpacing the benchmark FBM KLCI in 2021 (KLTEC +39% vs KLCI -4%), the technology sector is poised to be an outperformer again in 2022.
Hong Leong Investment Bank (HLIB) Research expects the sector to remain in expansionary mode with 8% growth in 2022.
“Capital spending is expected to reach another record on the back of strong fab construction pipeline. Stronger greenback outlook may boost the sector’s prospect,” projected analyst Tan J Young in a 2022 technology sector outlook.
“We are not overly concerned on the rising input prices as tech players are believed to be able to pass through the additional costs.”
Reiterating an “overweight” stance and tactically in favour of front-end players, HLIB Research expects growth to be driven by smartphone, communication, high-performance computing (HPC), Internet of Things (IoT) and the automotive segments.
In terms of global semiconductor sales performance, the 10M 2021 sales shot up 25% year-on-year to US$450 bil to be on track to record another all-time high revenue.
“The latest industry average growth projection of 23% exceeds our initial estimate of 20% (hence, the 8% expansionary mode),” noted the research house.
“With greenback averaging RM4.16/US$ in 2022 from 2020’s RM4.14/US$, we expect tech firms to be marginally boosted as majority of their sales are denominated in US dollar terms while partly offset by the US dollar cost items.”
According to World Semiconductor Trade Statistics (WSTS), all product categories are expected to experience expansions in 2022: sensors (+11%) leads the pack followed by logic (+11%), analogue (+9%), memory (+9%), discrete (+7%), opto (+6%) and micro (+6%).
Henceforth, HLIB Research expects the tech sector to experience multi-year earnings growths supported by fundamental exponential demand, which is further enticed by government incentives.
“We maintain our tactical position in favour of front-end players as many countries have rushed to develop their semiconductor capabilities, especially in leading edge (≤7nm) front-end fabrication (foundry) to be self-sufficient on the back of national strategic and security interests,” the research house pointed out.
On top of Frontken Corp Bhd and UWC Bhd which have exposures to front-end fabrication, HLIB Research also includes Kobay Technology Bhd as one of its top picks, leveraging on the company’s rapidly growing new business ventures, namely advance data server and solar frame projects. – Jan 5, 2022
